presentation barclays flynn final information... · 2012. 1. 10. · investor presentation 2011...

September 14 2011

Investor Presentation

2011Barclays Capital

Tom FlynnChief Financial Officer

BMO Financial Group

Global Financial Services Conference

1Barclays Capital Investor Conference • September 14, 2011

Forward Looking Statements & Non-GAAP MeasuresCaution Regarding Forward-Looking Statements

Bank of Montreal’s public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the safe harbour provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for 2011 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary, fiscal or economic policy; the degree of competition in the geographic and business areas in which we operate; changes in laws or in supervisory expectations or requirements, including capital and liquidity requirements and guidance; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete andintegrate acquisitions; critical accounting estimates; operational and infrastructure risks; general political conditions; global capital markets activities; the possible effects on our business of war or terrorist activities; disease or illness that affects local, national or international economies; disruptions to public infrastructure, such as transportation, communications, power or water supply; and technological changes.

With respect to the M&I transaction, such factors include, but are not limited to: the possibility that the anticipated benefits from the transaction such as it being accretive to earnings and other impacts on earnings, expanding our North American presence and synergies are not realized in the time frame anticipated or at all as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations (including changes to capital requirements) and their enforcement, and the degree of competition in the geographic and business areas in which the combined businesses now operate; the ability to promptly and effectively integrate the businesses of M&I and BMO; reputational risks and the reaction of M&I’s customers to the transaction; diversion of management time on integration and restructuring related issues; and increased exposure to exchange rate fluctuations. A significant amount of M&I’s business involved making loans or otherwise committing resources to specific companies, industries or geographic areas. Unforeseen events affecting such borrowers, industries or geographic areas could have a material adverse effect on the performance of our integrated U.S. operations.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 29, 30, 61 and 62 of BMO’s 2010 Annual Report, which outlines in detail certain key factors that may affect Bank of Montreal’s future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statements, whether written or oral, that may be made, from time to time, by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented and our strategic priorities and objectives, and may not be appropriate for other purposes.

In calculating the pro-forma impact of Basel III on our regulatory capital and regulatory capital ratios, we have assumed our interpretation of the proposed rules announced by the Basel Committee on Banking Supervision (BCBS) as of this date and our models used to assess those requirements are consistent with the final requirements that will be promulgated by BCBS and the Office of the Superintendent of Financial Institutions Canada (OSFI). We have also assumed that the proposed changes affecting capital deductions, risk-weighted assets, the regulatory capital treatment for non-common share capital instruments (i.e. grandfathered capital instruments) and the minimum regulatory capital ratios are adopted as proposed by BCBS and OSFI. We also assumed that existing capital instruments that are non-Basel III compliant but are Basel II compliant can be fully included in such estimates. The full impact of the Basel III proposals has been quantified based on our financial and risk positions at July 31 or as close to July 31 as was practical. The impacts of the changes from IFRS are based on our analysis to date, as set out in Transition to International Financial Reporting Standards in the Future Changes in Accounting Policies – IFRS section in our 2010 Annual Report and later in this document. In setting out the expectation that we will be able to refinance certain capital instruments in the future, as and when necessary to meet regulatory capital requirements, we have assumed that factors beyond our control, including the state of the economic and capital markets environment, will not impair our ability to do so.

In determining the impact of reductions to interchange fees in the U.S. Legislative Developments section, we have assumed that business volumes remain consistent with our expectations and that certain management actions are implemented that will modestly reduce the impact of the rules on our revenues.

Assumptions about the performance of the Canadian and U.S. economies as well as overall market conditions and their combined effect on the bank’s business are material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies.

Non-GAAP Measures

Bank of Montreal uses both GAAP and non-GAAP measures to assess performance. Readers are cautioned that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings under GAAP and are unlikely to be comparable to similar measures used by other companies. Reconciliations of GAAP to non-GAAP measures as well as the rationale for their use can be found in Bank of Montreal’s Third Quarter 2011 Report to Shareholders and 2010 Annual Report, all of which are available on our website at www.bmo.com/investorrelations.

Examples of non-GAAP amounts or measures include: productivity and leverage ratios; revenue and other measures presented on a taxable equivalent basis (teb); amounts presented net of applicable taxes; adjusted net income, revenues, provision for credit losses, earnings per share, ROE, productivity ratio and other adjusted measures which exclude the impact of certain items such as integration costs, amortization of acquisition related intangibles and charges for foreign exchange on hedges.

Bank of Montreal provides supplemental information on combined business segments to facilitate comparisons to peers.


BMO Financial Group

1 Published by Bloomberg; Asset and market capitalization rankings as at Sept 9, 20112 Balances reported in Canadian dollars. Cdn/U.S. exchange rate: Q3 YTD 2011 average $0.9777

Adjusted3 Revenue / RevenueC$9.9B (US$10.1B) / C$9.8B (US$10.1B)

Adjusted3 Net Income / Net IncomeC$2.4B (US$2.5B) / C$2.4B (US$2.4B)

Adjusted3 ROE / ROE16.1% / 15.7%

Adjusted3 EPS*/EPSC$4.02(US$4.11) / C$3.91 (US$4.00)

PCLC$567 million (US$580 million)

Average AssetsC$424 billion (US$434 billion)

Capital Ratios (Basel II)Common Equity Ratio – 9.11%Tier 1 – 11.48%

Listings

NYSE, TSX (Ticker: BMO)

Share Price1

Sept 9/11: NYSE – US$58.81TSX – C$58.60

Market Cap1

Sept 9/11: C$37 billion (US$38 billion)

# of Employees47,615

13 million personal, commercial, corporate and institutional customers

YTD Q3 F2011 Results2

3 Items excluded from YTD 2011 results in the determination of adjusted results include integration cost for M&I of $78 million ($49 million after tax); charge to revenue for hedge of foreign currency risk on purchase of M&I of $20 million ($14 million after tax); amortization of acquisition-related intangible assets of $36 million ($29 million after tax); and decrease in the general allowance for credit losses of $42MM ($30MM after tax); Adjusted results and measures are Non-GAAP, see slide 1 and pages 3 and 28 of Bank of Montreal’s Third Quarter 2011 Report to Shareholders.

4th largest bank1 in Canada measured by total assets 9th largest bank1 in North America measured by market capitalization 100% ownership of Chicago-based BMO Harris Bank


North American Markets

46,000

8.4

39.2

1,816.7

IL, WI, MN, KS, MO, IN

U.S.Canada

41,000

10.3

2.3

91.5

AtlanticCentralWestern

44,500

7.4

21.3

881.9

46,000

6.2

10.6

545.7

Avg. Annual Earnings ($)

Unemployment Rate (%)

Population (millions)

GDP ($B)

Source: BMO Economics

Total GDP $1.5 trillion for Western, Central and Atlantic Canada; Real GDP growth in Canada forecasted at 2.4% over the next 5 years

Canada national unemployment rate of 7.3%

Well diversified economy and benefits from strong demand for natural resources from emerging markets

U.S. national unemployment rate at 9.1%

78 Fortune 500 companies headquartered in our U.S. footprint, and thousands of small and medium-sized enterprises across a wide range of industries

Retail deposit market share: #1 in Wisconsin, #3 in Chicago and across our U.S. Midwest markets

Real GDP growth over the next 5 years forecasted at 2.7% in the U.S. and 3.4% in the US Midwest


P&C Canada (Bank of Montreal) – 914 locations

Private Client Group (Wealth Management)

P&C U.S. (BMO Harris Bank) – 681 locations

BMO Capital Markets

Greater Chicago221

Greater Vancouver74

Greater Toronto205

Greater Montreal95

Greater Edmonton37

Greater Calgary43

Greater Winnipeg27

Halifax / Saint John22

Greater Milwaukee78

GreaterMinneapolis30

GreaterPhoenix48

Florida 39

Greater Indianapolis42

BMO’s North American Footprint


Diversified Business Mix

Personal & Commercial Banking Canada Over 7 million customers; 900+ branches and 2,100+

automated banking machines

Personal & Commercial Banking U.S. Over 3 million customers; 680+ branches and 1,300+

automated banking machines

BMO CM 279, 30%

PCG 122, 13%

P&C US 100, 11%

P&C Canada

434, 46%

Q3 11 Adjusted2 Net Income (C$MM) - $935MM*

P&C (Personal & Commercial)

57%

* Excludes Corporate Services net loss $92MM

1 Pro forma reflects full quarter adjusted run rate of M&I2 Non-GAAP measures, see slide 1 and page 28 of the Third Quarter 2011 Report to Shareholders* Operating segment results reported on an Expected Loss (EL) basis; see Note 26 on page 157 of BMO’s 2010 Annual Report

P&C Canada, 1,527, 44%

BMO CM, 837, 24%

PCG, 617, 18%

P&C US, 490, 14%

Q3 11 Revenue (C$MM) - $3,471MM*

P&C (Personal & Commercial)

58%

* Excludes Corporate Services revenue $(197)MM

Over 75% of revenue and net income from retail businesses in Canada and the US (P&C and PCG), pro forma1

Private Client Group (PCG) Serves full range of client segments with full service and

direct brokerage, mutual funds, institutional asset mgmt, private banking, ultra-high net worth and insurance

BMO Capital Markets (BMO CM) Provides full range of products and services to

corporate, institutional and government clients


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

BMO Cdn Competitors Weighted AverageHistorical Average (BMO)* Historical Cdn Competitors' Average

0.61%

0.41%0.44%

Risk Management

Specific PCL as a % of Average Net Loans and Acceptances(excluding Reverse Repos)

0.47%

Perc

ent

BMO’s Canadian competitors include: BNS, CM, NA, RY, TD Competitor average excludes the impact of TD’s sectoral provisions

* Historical avg.: 1991 to 2010

0.410.47F2011 YTD

0.610.44Historical avg.*

0.530.61F2010

Canadian CompetitorsBMO

YTD

History of strong credit performance

Long-term average of PCL ratio better than peers

Higher loss rate during the downturn reflects larger U.S. loan portfolio relative to Canadian peers

Performed well relative to US Peers


Strong Capital PositionDisciplined capital management with consistent and prudent approach to deployment

Longest running dividend payout record of any company in Canada

Attractive dividend yield

As of July 31, 2011:

Basel II Common Equity ratio of 9.1% and Tier 1 ratio of 11.5%

Pro forma for Basel III the Common Equity Ratio estimated at ~6.6%1 and Tier 1 ratio at ~8.8%1

Remain confident in our ability to comfortably meet the Basel III 2019 requirements by 2013

1 Estimates based on announced Basel III 2019 rules and the impact of adoption of IFRS. For further details regarding assumptions and factors used in our calculations refer to pages 5, 14 and 15 of Bank of Montreal’s Third Quarter 2011 Report to Shareholders

2.80

0.740.82 0.88 0.94 1.00 1.12

1.201.34

1.591.85

2.26

2.712.80 2.80 2.80

2.632.532.532.51

2.30

1.95

1.721.45

1.151.06

0.59 0.63 0.71 0.74 0.840.96

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Annual Dividends Declared Per Share (C$)

10.1%BMO 15-Year

Compound Annual Growth Rate

8.6%BMO 5-Year

BMOCanadian peer group average

2

2

2 F2011 annual dividend based on Q1-Q3 actual dividend and declared dividend for Q4’11


Differentiated Levers to GrowthCommercial Lending a key differentiator; lift from U.S. initiatives

Commercial CAD & U.S. Commercial represents 32%

of total loan portfolio

20% commercial lending market share in Canada

Strong Midwest business

Focused on actions to grow fee-based income

Lift from M&I Integration Transforms our U.S. retail

operations

Synergies in excess of US$300MM pre-tax

U.S. retail brand well received

Medium-term aspiration: US$1 billion in annual earnings from combined U.S. retail operations

BMO Capital Markets U.S. Talent and distribution

capabilities strengthened

Concentration on specific sectors

An ability to meet the needs of mid-cap clients with an integrated offer backed by a strong balance sheet


Major Integration Accomplishments

New branding strategy definedTimeline for brand rollout across the network in place

Timelines being established for core system integration

Plans in place; expect annual cost savings in excess of US$300MM

Comprehensive orientation programs in place to ensure a smooth transition for all employees

Systems integration

Branding & branch conversion

Capture synergies

Integrate businesses & people

M&I Integration

Integration Objectives Update

July 2011 201312-18 monthsDec 2010

Acquisition Announcement

Planning for Close and Integration

Close &Integration Begins

Expected Integration Completion

Integration Time-Line

Systems Conversion & Rebranding

Closed Transaction July 5, 2011 Renamed Harris N.A. and opened for business on July 6

as BMO Harris Bank N.A. Rebranding of Harris Bank initiated 8,000 employees completed the orientation program

Decisions made on key personal and commercial and online platforms and systems conversion plan.

Top leadership in place at closing

Workforce reduction identified


1,2771,153

1,6401,429

1,222

4,5304,310

5,8315,288

4,794

F08 F09 F10 F2010 F2011

Strong performance over the past two years, holding top tier positions in both revenue and net income growth.

Building capacity by expanding specialized sales forces and distribution channels

Improving processes and technology to free up front-line capacity and reduce operating costs

Leveraging strengths and customer relationships to increase share of wallet

Annual

Personal & Commercial Banking CanadaTrack record of strong performance

Revenue and Net Income*(C$MM)

Net Income Revenue

YTD (9 months)

Growth

5%

5%

* Operating segment results reported on an Expected Loss (EL) basis; see Note 26 on page 157 of the 2010 Annual Report. F2008 not restated


Annual

204236 205271

161

1,230

1,008

1,3711,3651,301

F08 F09 F10 F2010 F2011

YTD (9 Months)

Personal & Commercial Banking U.S.

Revenue and Net Income*(US$MM)

Competitive scale, focused on organic expansion within attractive markets

Focused on integrating M&I taking the best of best from both organizations creating a much stronger bank; Integration on target

Focused on managing sales productivity and costs and optimizing expanded distribution network

Maintaining strong customer loyalty

Goal to be the undisputed leader in commercial banking in the Midwest Net Income Revenue Growth

22%

27%

* Operating segment results reported on an Expected Loss (EL) basis; see Note 26 on page 157 of the 2010 Annual Report. F2008 not restated: In Q3 2011, US$2.5B of impaired real estate secured assets, comprised primarily of commercial real estate loans were transferred from P&C U.S. to Corporate Services to allow our businesses to focus on ongoing customer relationships and to leverage our risk management expertise in our special assets management unit


Annual

277160139

152

10499

F2009 F2010 YTD F2011

Private Client Group


AUA/AUM(C$B)

429

Effectively partnering across business segments to maximize cross-sell opportunities

Selectively investing to expand our business: New ETF family recently surpassed $3 billion in AUM Increased # of investment advisors and private bankers Enhanced insurance offering

Net income from traditional wealth businesses up 35% Y/Y

426361

460374331

1,8602,146

2,0122,245

1,652

F08 F09 F10 F2010 F2011

Net Income Revenue

238 264

AUA

AUM

YTD (9 Months)

Leveraging personal and commercial client base to drive growth in Canada and the U.S.

Growth

13%

13%



Annual

Aligning capital and capabilities with client opportunity

Focus on strategic sectors

Strengthen business in U.S. with strategic investments

YTD ROE of 22.9%, up from 18.3% from last year

BMO Capital Markets


Established track record of success

Net Income Revenue

YTD (9 Months)

771

568

816870

602

2,6362,442

3,2783,085

2,178

F08 F09 F10 F2010 F2011

Growth

8%

28%



Brand Underpins Customer Strategy

Relentless Customer FocusMaximize earnings growth across all North American personal and commercial banking businesses, focusing on industry-leading customer experience and sales force productivity.

BMO – Moving With Our Customers

Accelerate the growth of our wealth management business through client-focused financial planning and by investing for future growth.

Deliver strong, stable returns in our capital markets business by providing highly targeted solutions to our core clients from a single integrated platform.

Develop our business in select global marketsto grow with our clients, expand our capabilities and reach new customers.

Sustain a culture that focuses on customers, high performance and our people.

Maximize the strength of our brand to drive growth

Remain focused on our strategy and our customers

Concentrate on where customers are going and foster progressive innovation

Sustain a culture that supports our strategic agenda and is deeply rooted across the organization

Strategic Priorities

1

2

3

4

5

Sustain a Culture of Excellence

VIKI LAZARISSenior Vice [email protected]

MICHAEL [email protected]

ANDREW CHINSenior [email protected]

Investor Relations Contact Information

E-mail: [email protected]

www.bmo.com/investorrelations

Fax: 416.867.3367

presentation barclays flynn final information... · 2012. 1. 10. · investor presentation 2011...

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